PORTA SYSTEMS CORP.
575 Underhill Boulevard
Syosset, New York 11791
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
June 6, 1996
----------
The 1996 Annual Meeting of Stockholders (the "Annual Meeting") of Porta
Systems Corp., a Delaware corporation (the "Company"), will be held at the
Company's corporate offices at 575 Underhill Boulevard, Syosset, New York, on
June 6, 1996, at 8:30 A.M., Eastern Daylight Savings Time, for the following
purposes:
1. to elect six directors to serve until the 1997 Annual Meeting of
Stockholders and until their successors shall be elected and
qualified;
2. to approve an amendment to the Company's certificate of incorporation
to change the authorized capital stock of the Company by increasing
the number of authorized shares of common stock, par value $.01 per
share ("Common Stock"), from 20,000,000 shares to 40,000,000 shares;
3. to approve a one-for-five reverse split of the Company's Common Stock;
4. to approve the Company's 1996 Stock Option Plan;
5. to ratify the appointment of KPMG Peat Marwick as independent auditors
of the Company for the fiscal year ending December 31, 1996; and
6. to transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on April 17, 1996,
as the record date (the "Record Date") for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting. A copy of the Company's
Annual Report is being sent together with this Proxy Statement to all
stockholders of record on the Record Date. Additional copies are available on
request. A copy of the Company's list of stockholders as of the Record Date may
be reviewed by any stockholder for any purpose germane to the Annual Meeting
during ordinary business hours at the Company's corporate office at 575
Underhill Boulevard, Syosset, N.Y., for a period of ten days prior to the date
of the Annual Meeting.
By order of the Board of Directors
WILLIAM V. CARNEY
Secretary
Syosset, New York
May 14, 1995
THE MATTERS BEING VOTED ON AT THE ANNUAL MEETING ARE IMPORTANT TO THE COMPANY,
AND CERTAIN OF THE MATTERS REQUIRE THE APPROVAL OF THE HOLDERS OF A MAJORITY OF
THE OUTSTANDING SHARES OF COMMON STOCK. IN ORDER THAT YOUR VOTE IS COUNTED AT
THE ANNUAL MEETING, PLEASE EXECUTE, DATE AND PROMPTLY MAIL THE ENCLOSED PROXY
CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON AT
THE ANNUAL MEETING IF THE PROXY IS REVOKED IN THE MANNER SET FORTH IN THE PROXY
STATEMENT.
<PAGE>
PORTA SYSTEMS CORP.
575 Underhill Boulevard
Syosset, New York 11791
----------
PROXY STATEMENT
1996 Annual Meeting of Stockholders
----------
GENERAL INFORMATION
The accompanying proxy and this Proxy Statement are furnished to the
stockholders of Porta Systems Corp., a Delaware corporation (the "Company"), in
connection with the solicitation of proxies for use at the 1996 Annual Meeting
of Stockholders (the "Annual Meeting") of holders of its Common Stock, par value
$.01 per share (the "Common Stock"), to be held at the Company's corporate
offices at 575 Underhill Boulevard, Syosset, New York, at 8:30 A.M., Eastern
Daylight Savings Time, on June 6, 1996, and at any adjournments or postponements
thereof. The enclosed proxy is being solicited by the Board of Directors of the
Company.
If a proxy in the accompanying form is duly executed and returned, the
shares represented by the proxy will be voted in accordance with the
instructions indicated thereon. If no instructions are given, proxies will be
voted in accordance with the recommendations of the Board of Directors. Any
stockholder giving a proxy has the power to revoke it at any time before it is
exercised. A proxy may be revoked by written notice to the Company bearing a
later date than the proxy or by the execution and delivery to the Company of a
subsequently dated proxy. Any stockholder attending the Annual Meeting may vote
in person if the stockholder desires to do so, whether or not that stockholder
has previously given a proxy.
This Proxy Statement and the enclosed proxy are first being mailed to
stockholders on or about May __, 1996.
VOTING SECURITIES
The close of business on April 17, 1996 has been fixed as the record date
(the "Record Date") for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting. Only holders of record of Common Stock at the
close of business on the Record Date will be entitled to notice of and to vote
at the Annual Meeting. Each stockholder is entitled to one vote for each share
of Common Stock held on the Record Date. The Company had 10,257,831 shares of
Common Stock outstanding on the Record Date.
PRINCIPAL HOLDERS OF SECURITIES
AND SECURITY HOLDINGS OF MANAGEMENT
There are no persons known to the Company to be the beneficial owners of
five percent (5%) or more of the outstanding shares of Common Stock.
<PAGE>
The following table sets forth, as of April 17, 1996, the number of
outstanding shares of Common Stock of the Company beneficially owned by each
current director of the Company, the Chief Operating Officer of the Company and
each of the four most highly compensated executive officers other than the Chief
Operating Officer, and all current directors and officers of the Company as a
group.
Percentage of
Shares of Common Stock Outstanding
Name Beneficially Owned (1) Common Stock
------ --------------------- -------------
Edward Olson ......................... -- --
William V. Carney .................... 243,864 (2) 2.5% (3)
Howard D. Brous ...................... --
Warren H. Esanu . .................... 500,000 (3) 4.9%
Herbert H. Feldman ................... -- --
Stanley Kreitman . ................... 3,000 (4) *
Michael A. Tancredi .................. 72,988 (5) *
John L. Gazzo ........................ 44,025 (6) *
All current directors and executive
officers as a group (13 persons) ... 835,558 (2)(3)(4) 8.0%
(5)(6)(7)
- - - - ----------
* Less than one percent of the outstanding shares of Common Stock.
(1) Except as otherwise indicated each person has the sole power to vote and
dispose of all shares of Common Stock listed opposite his name.
(2) Includes 22,500 shares of Common Stock issuable upon the exercise of
options held by Mr. Carney.
(3) Represents shares issuable upon exercise of an option held by Mr. Esanu.
(4) Includes 3,000 shares of Common Stock issuable upon the exercise of options
held by Mr. Kreitman.
(5) Includes 14,700 shares issuable upon the exercise of options held by Mr.
Tancredi.
(6) Includes 22,500 shares of Common Stock issuable upon the exercise of
options held by Mr. Gazzo.
(7) Includes 84,225 shares issuable upon the exercise of options held by
officers and directors of the Company other than those listed in the above
chart.
ELECTION OF DIRECTORS
Six directors, constituting the entire board, are to be elected at the
Annual Meeting to serve for the ensuing year and until their respective
successors are elected and qualified. If any of the persons described in this
Proxy Statement who have been nominated by the Board of Directors of the Company
become unable to accept election, it is intended that the proxies solicited
hereby will be voted for the balance of those named and for a substitute nominee
or nominees designated by the Board of Directors. The Company knows of no reason
why any of the nominees listed below would be unable to accept election.
2
<PAGE>
Unless authority to do so is expressly withheld by marking the "Against"
box or by writing in the name of the nominee or nominees as to whom authority is
to be withheld on the proxy card, proxies received in response to this
solicitation will be voted in favor of the election as directors of the Company
of the persons listed below.
Principal Occupation Director
Name of Nominee or Employment Since Age
---------------- ------------------- -------- ----
Warren H. Esanu(1)(2)(3) ..... Chairman of the Board 1989 53
of the Company, of
counsel to Esanu Katsky
Korins & Siger, attorneys at law
Howard D. Brous(1)(2)(3) ..... President and Chief 1989 50
Executive Officer of
H.D. Brous & Co., Inc.,
a New York Stock
Exchange member firm
Herbert H. Feldman(1)(2)(3) .. President, Alpha Risk 1989 62
Management, Inc.,
independent risk
management consultants
Stanley Kreitman(1)(2)(3) .... Vice Chairman, Manhattan 1995 63
Associates, investment advisors
William V. Carney ............ Vice Chairman, Senior 1970 58
Vice President, Chief
Technical Officer, Secretary
of the Company
Michael A. Tancredi .......... Vice President-Administration, 1970 65
Treasurer of the Company
- - - - ----------
(1) Member of the Executive Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
(3) Member of the Audit Committee of the Board of Directors.
Each of the nominees listed above was elected a director at the last annual
meeting of stockholders.
Mr. Esanu has been Chairman of the Board of the Company since March 1996.
He has been of counsel to Esanu Katsky Korins & Siger, attorneys at law, for
more than the past five years. Mr. Esanu is also a founding partner and Chairman
of Paul Reed Smith Guitars Limited Partnership (Maryland), a leading
manufacturer of premium-priced electrical guitars. He is also a senior officer
and director of a number of privately held real estate management companies.
Mr. Carney has been a senior vice president of the Company for more than
the past five years. He has been Vice Chairman since 1988, Senior Vice President
since 1989, Chief Technical Officer since 1990 and Secretary since 1977. He also
served as Senior Vice President-Mechanical Engineering from 1988 to 1989, Senior
Vice President-Connector Products from 1985 to 1988, Senior Vice
President-Manufacturing from 1984 to 1985 and Senior Vice President-Operations
from 1977 to 1984.
Mr. Tancredi has been a vice president of the Company for more than the
past five years. He has been Vice President-Administration since 1995 and
Treasurer since 1978, having served as has served as Vice President-Finance and
Administration from 1989 to 1995 and Vice President-Finance from 1984 to 1989.
3
<PAGE>
Mr. Brous has been President and Chief Executive Officer of H.D. Brous &
Co., Inc., a New York Stock Exchange member firm for more than the past five
years.
Mr. Feldman has been President of Alpha Risk Management, Inc., independent
risk management consultants, for more than the past five years. He is its sole
stockholder.
Mr. Kreitman has been Vice Chairman of Manhattan Associates, a firm of
investment advisors, since February 1994. For more than five years prior
thereto, he was President of United States Banknote Corp.
In March 1996, the Company executed a Stipulation of Settlement to settle
class action proceedings consolidated and pending in the United States District
Court for the Eastern District of New York, alleging violations of the
anti-fraud provisions of the federal securities laws by the Company and certain
of its present and former officers and directors. An order of preliminary
approval of settlement has been approved by the Court. The agreement is subject
to certain conditions precedent, including the maintenance by the Company's
common stock of a certain minimum market value. Notice of the court hearing on
the settlement has been sent to class members, and the hearing is scheduled for
June 7, 1996.
The settlement, if consummated, will include a cash payment by the
Company's insurers and issuance by the Company of 1,100,000 shares of its Common
Stock, to be distributed in accordance with a plan to be approved by the Court.
Under the Stipulation of Settlement, the Company is not required to contribute
any cash towards the settlement, and the Company has not admitted any liability
in connection with the settlement.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established Executive, Compensation
and Audit Committees.
The Executive Committee exercises all the powers of the Board of Directors
in the conduct of the Company's business to the full extent permitted by
Delaware law between meetings of the Board of Directors. The Executive
Committee's present members are Messrs. Brous and Esanu.
The Compensation Committee has been empowered to approve the compensation
of all senior Company employees, as well as to administer the Company's 1986
Stock Option Plan. See "Report of the Compensation Committee" below. The
Compensation Committee's present members are Messrs. Feldman, Esanu and Brous.
Mr. Feldman is its chairman.
The Audit Committee's principal responsibilities are to review the terms of
the engagement of the Company's independent accountants, review the Company's
policies and procedures with respect to internal auditing, accounting and
financial controls and review and discuss the Company's independent accountants'
reports and recommendations. The Audit Committee's present members are Messrs.
Feldman, Esanu and Brous. Mr. Esanu is its chairman.
Excluding actions by unanimous written consent, during 1995, the Board of
Directors held nine meetings, the Executive Committee held no meetings, the
Audit Committee held four meetings and the Compensation Committee held one
meeting. Each of the nominees for director attended at least 85 percent of the
aggregate number of meetings of the Board of Directors and the committees on
which he served held during the period he served as such.
The Company does not have a nominating committee of the Board of Directors.
4
<PAGE>
DIRECTORS' COMPENSATION
Each director who is not an employee of the Company and the Chairman
receives an annual fee of $16,000 for serving as a director of the Company, and
each chairman of a standing committee of the Board of Directors receives an
additional annual fee of $3,000. Each director receives a supplemental fee of
$1,200 for each Board and each committee meeting attended.
EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following reports and
the performance graph appearing in this Proxy Statement shall not be
incorporated by reference into any such filings.
Description of Compensation
The Compensation Committee of the Company's Board of Directors (the
"Committee") consists of independent, non-employee directors, plus Mr. Esanu,
who is subject to an Employment Agreement, as described in this Proxy Statement.
The role of the Committee, among other things, is to review and approve the
broad compensation policies of the Company with respect to its executives and
various components of the total compensation of the executive officers. The
Committee also examines and approves the elements of the Company's variable
compensation plans. The various components of executive compensation include the
following:
Base Salary. Base salaries for executives and all other salaried employees
are paid within salary ranges established for each position. Each employee's
salary, including executives' salaries, is based on an annual assessment of
competitive pay and his or her contribution to the business.
Bonuses. The Company awards bonuses to executive officers and other
employees who have made a contribution to the Company's operations. The award of
bonuses to the Chief Executive Officer and the Chief Operating Officer is based
solely on certain corporate financial performance criteria, including return on
sales, return on equity and growth in sales compared to the previous year.
Bonuses awarded to other executive officers are based on corporate financial
performance criteria and individual performance.
Stock Options. In April 1996, the Board of Directors adopted, subject to
stockholder approval, the 1996 Stock Option Plan, pursuant to which options to
purchase 500,000 shares of Common Stock may be granted. The Plan also provides
for the automatic grant of options to purchase 10,000 shares to each director
other than management directors. See "Approval of the 1996 Stock Option Plan"
for information relating to a such plan and outstanding options under a prior
plan, the 1986 Stock Option Plan (the "1986 Plan"), which permitted options to
purchase up to 850,000 shares of Common Stock. The 1986 Plan expired in March
1996, although options granted prior to the expiration date remain in effect in
accordance with their terms. In addition, the Board may grant options
independent of any option plan.
The Company views stock options as a competitively appropriate component of
total compensation which provide long-term incentives, linking the interests of
executives and other employees receiving grants with those of the Company's
stockholders. Because of their long-term nature and the linkage of executive and
stockholder interests, stock options are the Company's only long-term incentive
compensation program. Generally, grants have not been made to executive officers
since 1989, although grants have been made to other employees from time to time
since 1989, including a grant of options to certain executive officers prior to
5
<PAGE>
their election as executive officers, and a grant of options to purchase an
aggregate of 30,000 shares awarded in October 1995 to one newly elected
executive officer. In addition, in March 1996, Mr. Esanu was granted options to
purchase an aggregate of 500,000 shares of Common Stock.
Supplementary Group Life and Long-Term Disability Insurance. The Company
makes available supplementary group life insurance coverage and special
long-term disability coverage to certain employees, including Messrs. Carney and
Gazzo, and commencing in March 1996, Mr. Esanu. During 1995, the Company also
provided such insurance to Mr. Santulli. Supplementary group life insurance
coverage is in an amount of $500,000 for each executive, and is in addition to
the group life insurance benefit provided to all employees, which is equal to
twice an employee's salary, with a maximum benefit of $250,000.
401(k) Plan. Effective as of November 1, 1986, the Company adopted a cash
or deferred savings plan (the "401(k) Plan") under section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"). Under the 401(k) Plan,
an employee who has completed at least one month of credited service and is at
least 20 1/2 years of age may elect to have the Company deduct under a salary
reduction agreement up to 15% of the employee's salary (subject to limitations
contained in the Code) and contribute this sum on behalf of the employee to the
401(k) Plan instead of paying it to the employee. The participating employee is
not taxed on that contribution. Through December 31, 1995, the Company matched
each participant's contribution by making a contribution in an amount equal to
75% (subsequently changed to 25% effective January 1, 1996) of the amount which
the participant elected to defer in the 401(k) Plan (however, in no case is the
amount contributed by the Company permitted to be greater than 6% of the
participant's salary).
Supplemental Management Compensation Programs. The Company provides
supplemental management compensation program for certain management employees of
the Company designed to provide current and post-employment benefits in the
event of their retirement or death. The supplemental management compensation
program is comprised of a supplemental retirement income program and an equity
split-dollar program. The Company expects that substantially all of the cost of
these programs to the Company will eventually be recovered through the receipt
of proceeds of life insurance on the lives of covered employees. The Company's
1995 premium payments with respect to Messrs. Santulli, Carney and Gazzo are
included in the Summary Compensation Table under the heading "All Other
Compensation."
The supplemental retirement income program is intended to provide a
participating employee or his heirs or distributees annual retirement income
equal to 50% of the employee's 1984 base salary. Payments under the program will
be made only after a participant's employment with the Company terminates and
then for a period of fifteen years following the earlier of his attainment of
age 65 or his death.
The equity split-dollar program permits participating employees to acquire
additional whole life insurance coverage (subject to medical examination) on a
basis pursuant to which the Company participates in the payment of premiums and
the receipt of policy proceeds. The program is structured so that the Company
will recover from the policy proceeds the full amount of premiums it has paid on
each policy. Annual benefits under this program are determined by standard
actuarial computations of the full amount of insurance coverage purchased as
reduced by any recovery by the Company of the full amount of premiums paid on
the policy. The amount of insurance coverage purchased to date has been
determined by applying a participant's pro rata share of aggregate 1984 base
salary compensation as of April 1, 1984 of the covered group to the overall 1984
Company budget of $100,000 for premiums under this program and the supplemental
retirement income program to determine the premium amount allocable to any
participant and thereafter securing insurance coverage obtainable in 1984 for
such premium, given the age and medical history of the participant. The Company
will recover from policy proceeds the full amount of paid premiums. Messrs.
Carney, Gazzo and one other executive officer currently participate in this
program.
6
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee endorses the principles of executive
compensation described above.
As part of its responsibilities, the Committee meets each December to
determine the base salary of the senior executives of the Company for the next
year and bonuses for the current year. The Committee also meets, from time to
time, to determine whether individual grants of stock options should be awarded
to senior executives as well as to other employees of the Company. In
discharging these responsibilities, the Committee reviews the performance of the
Company relative to its goals. In addition, with the assistance of the Chief
Executive Officer, the Committee reviews the individual performance of the other
senior executive officers. The Committee also evaluates the performance of the
Chief Executive Officer and the Chief Operating Officer, as reflected in the
financial performance of the Company, to determine base salary and bonus. The
Committee subsequently reports on its evaluation and compensation determinations
to the other non-employee directors.
Based on the performance of the Company in both 1994 and 1995, the
Committee determined that, generally, no bonuses would be paid to employees,
including the Chief Executive Officer and other executive officers for such
years and that the salaries of the executive officers would not be increased in
such years.
EXECUTIVE COMPENSATION
The following table shows the compensation paid by the Company and its
subsidiaries to its Chief Executive Officer and its four most highly compensated
executive officers, other than the Chief Executive Officer, and one other person
who was an executive officer during a portion of the year, whose salary and
bonus earned exceeded $100,000 for the most recent fiscal year.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
---------------------------------- --------------------
Other Restricted Options, All Other
Annual Stock SARs Compen-
Name and Compensa- Awards (Number sation
Principal Position Year Salary Bonus tion (Dollars) of Shares) (1)
----------------- ---- ------ -------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Vincent F. Santulli (2) ....... 1995 $ 275,000 -- -- -- -- $ 50,868
Chairman of the Board 1994 275,000 -- -- -- -- 48,959
and Chief Executive Officer 1993 275,000 -- $867 -- -- 50,716
William V. Carney ............. 1995 162,000 -- -- -- -- 35,750
Vice Chairman, Senior Vice 1994 162,000 -- -- -- -- 35,840
President and Secretary 1993 162,000 -- -- -- -- 36,410
John J. Gazzo ................. 1995 140,000 -- -- -- -- 31,455
Vice President 1994 140,000 -- -- -- -- 36,477
1993 140,000 -- 266 -- -- 36,929
Garet M. Romeo ................ 1995 125,788 -- -- -- -- 128,555
President and Chief 1994 211,000 -- -- -- -- 43,112
Operating Officer (3) 1993 211,000 -- 801 -- -- 42,927
Michael A. Tancredi ........... 1995 122,000 -- -- -- -- 6,930
Vice President- 1994 122,000 -- -- -- -- 6,930
Administration and Treasurer 1993 122,000 -- -- -- -- 6,747
Edmund Chiodo ................. 1995 107,000 -- -- -- -- 6,930
Vice President Operations 1994 105,930 -- -- -- -- 6,930
and Technical Services, 1993 102,600 -- -- -- -- 4,617
OSS Division
</TABLE>
- - - - -----
(1) "All Other Compensation" includes severance payments, to the extent
applicable, the Company's payment to the executive's account pursuant to
the Company's 401(k) Plan, premiums paid with respect to the equity split
dollar program, group life insurance in amounts greater than that available
to all employees and special long term disability coverage and amounts
equal to market interest on certain preexisting borrowings in connection
with awards under the Company's 1984 Employee Incentive Plan as set forth
on the table below.
(2) Mr. Santulli resigned as Chief Executive Officer and as a director
effective April 1, 1996.
(3) Mr. Romeo's employment was terminated as of July 31, 1995. He was paid
monthly severance payments pursuant to his employment contract from August
1, 1995 through December 31, 1995. Such severance payments continue through
July 31, 1998.
Set forth below is a chart which shows the component of "All Other
Compensation" listed in the Summary Compensation Table.
<TABLE>
<CAPTION>
Mr. Mr. Mr. Mr. Mr. Mr.
Santulli Romeo Carney Gazzo Tancredi Chiodo
------- ------ ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Company 401(k) Match ................. $ 6,930 $ 6,930 $ 6,930 $ 6,930 $ 6,930 $ 6,930
Equity Split dollar .................. 28,659 23,253 21,037 17,873 -- --
Supplemental Insurance ............... 4,250 2,971 3,048 3,263 -- --
Forgiveness of Interest on
Employee Debentures ............... 11,029 10,190 5,035 3,389 -- --
Severance ............................ -- 85,211 -- -- -- --
</TABLE>
There were no options granted during 1995 to any of the officers named in
the Summary Compensation Table.
8
<PAGE>
Set forth below is information relating options exercised during the past
fiscal year and options outstanding at December 31, 1995 with respect to the
officers named in the Summary Compensation Table.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-Money
Options at Options at
Fiscal Year End Fiscal Year End
------------------ ------------------
Shares Acquired Value Exercisable/ Exercisable/
Name Upon Exercise Realized Unexercisable Unexercisable
----- -------------- -------- ------------------ ------------------
<S> <C> <C> <C> <C>
Vincent F. Santulli ............... -- -- 59,000/ --/
3,750 --
William V. Carney ................. -- -- 22,500/ --/
15,000 --
John J. Gazzo ..................... -- -- 22,500/ --/
15,000 --
Garet M. Romeo .................... -- -- 42,000/ --/
24,000 --
Michael A. Tancredi ............... -- -- 14,700/ --/
-- --
Edmund Chiodo ..................... -- -- 4,500/ --/
-- --
</TABLE>
Certain of the Company's officers named in the Summary Compensation Table
or their affiliates are parties to employment, consulting or other agreements
providing for compensation during and after their employment with the Company.
Employment Agreements. The Company has employment agreements with Messrs.
Carney and Gazzo. The agreements continue on a year-to-year basis, for January 1
of each year, unless terminated by the Company on prior notice of not less than
120 days for Mr. Carney and 90 days for Mr. Gazzo. Salary is determined by the
Board of Directors, except that the salary may not reduced except as a part of a
salary reduction program applicable to all executive officers. Upon death or
termination of employment as a result of a disability, the officer or his estate
is to receive a payment equal to three months salary. Upon a termination without
cause, Mr. Carney is entitled to receive his then current salary for 18 months
plus one month for each full year of service with the Company up to a total
maximum of 30 months, and Mr. Gazzo is entitled to receive as a severance
payment his then current salary for a period of six months following the date of
termination plus an additional period equal to one month for each full year of
service with the Company up to a maximum total of 24 months. In the event that
an executive is covered by an executive severance agreement, including the
Salary Continuation Agreements (as described below), which provides for payments
upon termination subsequent to a change of control of the Company, the severance
arrangements described in this paragraph would not be applicable if the
executive is entitled to severance payments under the executive severance
agreement.
In March, 1996, the Company entered into an employment agreement with Mr.
Esanu, pursuant to which Mr. Esanu was elected as Chairman of the Board of
Directors of the Company. The agreement has an initial term of three years and
continues thereafter on a year-to-year basis unless terminated by either party
by written notice given no later than 90 days prior to expiration of the initial
term or any one-year extension. Pursuant to the agreement, Mr. Esanu receives a
salary of $200,000 per year and was granted non-qualified ten-year stock options
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<PAGE>
to purchase 500,000 shares of Common Stock at the average closing price of the
Common Stock during the last ten trading days in March 1996, which was $ 0.768
per share. In addition, under the employment agreement, Mr. Esanu will continue
to receive compensation as is provided to the independent, non-management
directors of the Company. Pursuant to the employment agreement, Mr. Esanu is
entitled to severance payments upon termination without cause by the Company,
and, in such event, the Company is required to pay to Mr. Esanu his salary for
(i) 6 months if such termination occurs prior to April 1, 1997, (ii) 9 months if
such termination occurs subsequent to March 31, 1997 and prior to April 1, 1998,
and (iii) 12 months if such termination occurs subsequent to March 31, 1998. In
addition, Mr. Esanu is entitled to receive 12 months of his salary if the
Company fails to renew Mr. Esanu's employment agreement.
Salary Continuation Agreements. The Company is a party to Salary
Continuation Agreements with Messrs. Carney, Tancredi and Gazzo and, pursuant to
Mr. Esanu's employment agreement, the Company has agreed to enter into a Salary
Continuation Agreement with Mr. Esanu. The Salary Continuation Agreements
provide that, in the event that a change of control of the Company occurs and
the executive's employment with the Company is subsequently terminated by the
Company other than for cause, death or disability, or is terminated by the
executive as a result of a substantial alteration in the executive's duties,
compensation or other benefits, the executive shall be entitled to the payment
by the Company of an amount equal to the executive's monthly salary at the rate
in effect as of the date of the executive's termination (or, if higher, as in
effect immediately prior to the change in control) plus the pro rata monthly
amount of the executive's most recent annual bonus paid immediately before the
change of control multiplied by 18. For purposes of the Salary Continuation
Agreements, a change of control is defined as one which would be required to be
reported in response to the proxy rules under the Securities Exchange Act of
1934, as amended (the "1934 Act"), the acquisition of beneficial ownership,
directly or indirectly, by a person or group of persons of securities of the
Company representing 25% or more of the combined voting power of the Company's
then outstanding securities, or, during any period of two consecutive years, if
individuals who at the beginning of such period constituted the Board of
Directors of the Company cease for any reason to constitute at least a majority
thereof unless the election of each new director was nominated or ratified by at
least two-thirds of the directors then still in office who were directors at the
beginning of the period. The change in control must occur during the term of the
Salary Continuation Agreement, which in each case is currently through December
31, 1996 and is renewed automatically unless the Company gives 60 days written
notice prior to January 1 of any year of its election not to renew the
agreement. If such a change of control occurs during the effectiveness of the
Salary Continuation Agreement, any termination during the eighteen months
following the change of control will result in the compensation described above.
Management and Consulting Services Agreement with KPMG BayMark Strategies,
LLC. The Company entered into an agreement with KPMG BayMark Strategies, LLC
("BayMark") for Baymark to provide turnaround management and consulting services
in an effort to improve the financial condition of the Company. Mr. Olson is the
Managing Principal of BayMark's crisis management group. Pursuant to the
agreement, Mr. Olson was elected President and Chief Operating Officer of the
Company. BayMark receives a management fee of $250,000, payable at the rate of
$20,000 per month for the first five months of the agreement and $15,000 per
month for the remaining ten months of BayMark's engagement. In addition, BayMark
is to receive (i) 5% of the Company quarterly earnings (before interest and
taxes), payable each quarter, during the engagement and for three years
immediately following termination of the agreement, (ii) 0.5% of the face amount
of total debt restructured or modified, excluding certain debt, and (iii) 1% of
the face amount of total excess inventory bartered, liquidated or otherwise
disposed of as approved by the Company. The Company has the right to terminate
the agreement, and, in such event that period during which payments are made to
BayMark is one year.
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<PAGE>
Borrowings From the Company in Connection with the Company's 1984 Employee
Incentive Plan. In connection with the award of certain debentures to employees
(the "Employee Debentures") under the Company's 1984 Employee Incentive Plan
(the "1984 Plan"), which has terminated, the Board of Directors authorized the
Company in 1985 and 1986 to offer loans to employees receiving awards to
facilitate the purchase of such Employee Debentures. Also, the Board of
Directors authorized an extension of the maturity of loans to certain employees
who elected to convert certain Employee Debentures into Common Stock.
Accordingly, loans of $137,870, $127,380, $62,940 and $42,360, borrowed by
Messrs. Santulli, Romeo, Carney and Gazzo, respectively, in connection with such
conversion, were outstanding as of April 17, 1996. Such extension loans are due
April 1, 1997 and bear floating interest at a rate which is subject to
adjustment each July 1 and January 1 based on a rate equal to 110% of certain
United States government obligations.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, Herbert H. Feldman, Howard D. Brous and Warren H. Esanu served
as members of the Company's Compensation Committee. During 1995, Alpha Risk
Management, Inc., an independent risk management consulting company of which Mr.
Feldman is president and sole shareholder, received an aggregate of $36,000 in
retainer fees in connection with its provision of ongoing risk management
services relating to the Company's corporate insurance coverage. The arrangement
is cancelable by either party upon ten days prior notice. Also during 1995, the
law firm of Esanu Katsky Korins & Siger, to which Mr. Esanu is of counsel,
provided legal services to the Company, for which it received fees of $451,750.
Esanu Katsky Korins & Siger is continuing to render legal services to the
Company during 1996.
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PERFORMANCE GRAPH
The following graph shows changes over the past five years in the value of
$100 invested in: (a) Porta Systems Corp. Common Stock; (b) The Standard and
Poors 500 Index and (c) an SIC peer group consisting of five companies whose
principal business activity is the manufacture of communications equipment:
Andrew Corp., DSC Communications Corp., M/A-Com Inc., Northern Telecom Limited
and Scientific Atlanta, Inc. The year-end values of each investment are based on
the share price appreciation plus the monthly reinvestment of dividends. Total
stockholder returns from each investment can be calculated from the year-end
investment values shown beneath the graph provided below.
[The following table was represented as a line graph in the printed material]
TOTAL RETURN TO STOCKHOLDERS
December 31, 1990 to December 31, 1995
Indexed/Cumulative Returns
<TABLE>
<CAPTION>
Base
Period Return Return Return Return Return
Company/Index Name 1990 1991 1992 1993 1994 1995
- - - - ------------------- ------ ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Porta Systems Corp. ................... 100 179.09 109.09 73.64 36.36 4.29
S&P 500 Index ......................... 100 126.42 136.05 149.76 151.74 215.45
S&P Communications Equipment
Manufacturers ....................... 100 172.52 186.08 179.02 204.21 274.35
</TABLE>
This total stockholder return model assumes reinvested dividends in Porta
Systems Corp.
Prepared by Standard & Poor's Compustat, a division of McGraw-Hill.
12
<PAGE>
APPROVAL OF AN AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION
On November 9, 1995, the Board of Directors approved an amendment to the
Company's certificate of incorporation to increase the authorized capital to
41,000,000 shares, of which 1,000,000 are shares of Preferred Stock and
40,000,000 shares are shares of Common Stock. The amendment does not affect the
number of authorized shares of Preferred Stock and increases the number of
authorized shares of Common Stock from 20,000,000 to 40,000,000 shares.
As of the Record Date there were 10,257,831 shares of Common Stock
outstanding. At such date, in addition to the 10,257,831 outstanding shares, the
Company had authorized the issuance of approximately 27,000,000 additional
shares of Common Stock pursuant to the Exchange Offer, in connection with the
settlement of the class action litigation against the Company and certain
directors, upon the exercise of outstanding options and warrants and upon
conversion of convertible debt securities. The principal component of authorized
but unissued shares of Common Stock is the 21,127,832 shares which represents
the maximum number of shares of Common Stock issuable upon conversion of the
Company's Zero Coupon Senior Subordinated Convertible Notes due January 1998
(the "Notes"). The Notes were issued and may be issued pursuant to an exchange
offer made to the holders of the Company's 6% Subordinated Debentures due July
2002 (the "Exchange Offer") whereby the holders of the Debentures have the right
to exchange $1,000 principal amount of Debentures for 97 shares of Common Stock
and a Note in the principal amount of $767.22. As of April 17, 1996, the holders
of Debentures in the principal amount of $28,825,000, representing approximately
80% of the Debentures, had accepted the Exchange Offer, which is continuing. As
a result, the Company issued 2,796,025 shares of Common Stock and Notes in the
principal amount of $22,115,117. At the lowest conversion price, the currently
outstanding Notes are convertible into approximately 16,881,769 shares of Common
Stock.
The directors approved the Exchange Offer as being in the best interest of
the Company. At the time of the Exchange Offer, the Company was in default under
certain obligations to its senior lender, which, as a result of the default,
served a notice prohibiting the Company from paying interest, including any
accrued interest, on the Debentures. The Exchange Offer enabled the Company to
reduce the principal amount of debt, relieve the Company from paying interest on
the Debentures exchanged.
In the event that the amendment to the certificate of incorporation is not
approved, the indenture pursuant to which the Notes were issued provides for the
issuance of Series B Preferred Stock in the following manner. At such time as
there are 19,000,000 shares of Common Stock outstanding, the Trustee under the
Indenture will issue, in respect of each Note presented for conversion, one
share of Series B Preferred Stock for each 50 shares of Common Stock otherwise
issuable upon conversion of a Note. The Company will issue shares of Common
Stock to the extent that the number of shares otherwise issuable upon conversion
of a Note exceeds a multiple of 50 shares.
Each share of Series B Preferred Stock will (a) vote on all matters (except
as otherwise required by law) with the Common Stock as if the Series B Preferred
Stock and the Common Stock were a single class, with each share of Series B
Preferred Stock having 50 votes per share and each share of Common Stock having
one vote per share, (b) participate with the Common Stock as if the Common Stock
and Series B Preferred Stock were a single class in any dividends or other
distributions, with each share of Series B Preferred Stock having the right to
receive 50 times the amount paid to one share of Common Stock, (c) upon
liquidation or dissolution have a preference of $.01 per share and, thereafter,
participate with the Common Stock as though the Series B Preferred Stock and the
Common Stock were a single class, with each share of Series B Preferred Stock
having the right to receive 50 times the amount paid to one share of Common
Stock, and (d) upon the filing of a certificate of amendment increasing the
13
<PAGE>
authorized Common Stock to 40,000,000 shares, each share of Series B Preferred
Stock will automatically, without any action on the part of the holder, become
and be converted into 50 shares of Common Stock. If the amendment to the
certificate of incorporation is approved, upon the filing of such certificate of
amendment, the authority of the Trustee to issue shares of Series B Preferred
Stock will terminate.
The Amendment of the Company's certificate of incorporation requires the
affirmative vote of a majority vote of the outstanding shares of Common Stock.
The Board of Directors recommends a vote FOR the amendment to the
certificate of incorporation.
APPROVAL OF ONE-FOR-FIVE REVERSE STOCK SPLIT
The Board of Directors has approved, subject to stockholder approval, a
one-for-five reverse split (the "Reverse Split") of the Company's Common Stock.
As a result of the Reverse Split, each share of Common Stock outstanding at the
effective time of the Reverse Split, will, without any action on the part of the
holder thereof, become one-fifth share of Common Stock. The par value of the
Common Stock will not be affected by the Reverse Split. The Common Stock, as
presently constituted, is referred to as the Old Common Stock, and the Common
Stock resulting from the Reverse Split is referred to as the New Common Stock.
The Reverse Split will become effective upon the filing with the Delaware
Secretary of State of an amendment to the Company's certificate of incorporation
which states that, upon the filing of the Certificate of Amendment, each share
of Common Stock then issued and outstanding would automatically become and be
converted into one-fifth share of Common Stock.
Principal Effects of Reverse Split
Based upon the approximately 10,257,831 shares of Common Stock outstanding
on the Record Date, the Reverse Split would decrease the outstanding shares of
Common Stock by 80% percent, and, once effective, the Reverse Split would result
in approximately 2,051,566 shares of New Common Stock outstanding. Similarly,
the aggregate number of shares of Common Stock reserved for (i) issuance
pursuant to the Exchange Offer, (ii) in settlement of the class action
litigation, (iii) issuance upon exercise of warrants and options and (iv)
issuance pursuant to conversion of convertible debt securities would decrease
from approximately 27,000,000 shares to approximately 5,400,000 shares.
Each outstanding option or warrant will automatically become an option or
warrant, as the case may be, to purchase 20% of the number of shares subject to
the option or warrant immediately prior to the Reverse Split at an exercise
price which is five times the exercise price of the option or warrant
immediately prior to the Reverse Split. The Company will obtain new CUSIP
numbers for the Common Stock effective at the time of the Reverse Split.
Following the effectiveness of the Reverse Split, the Company will provide each
record holder of Common Stock with information to enable such holder to obtain
new stock and certificates.
The Reverse Split will not affect the number of authorized shares of
Preferred Stock or Common Stock or the par value of the Common Stock. Subject to
the provisions for elimination of fractional shares, as described below,
consummation of the Reverse Split will not result in a change in the relative
equity position or voting power of the holders of Common Stock.
Assuming the Reverse Split is approved and implemented, the Certificate of
Amendment amending the Certificate of Incorporation will be filed with the
Secretary of State of Delaware as promptly as practicable thereafter. The
Reverse Split would become effective as of the close of business on the date of
such filing (the "Effective Date").
14
<PAGE>
Purposes of the Reverse Split
The Reverse Split would decrease the number of shares of Common Stock
outstanding and presumably increase the per share market price for the New
Common Stock. Theoretically, the number of shares outstanding should not, by
itself, affect the marketability of the stock, the type of investor who acquires
it or the Company's reputation in the financial community, but, in practice,
this is not necessarily the case, as many investors look upon a stock trading in
the range of $1.00 per share as speculative in nature and, as a matter of
policy, avoid investment in such stocks. Furthermore, stocks that trade for less
than $5.00 are subject to restrictions relating to the stock's marginability
pursuant to rules of The American Stock Exchange ("The Exchange") and internal
rules of many brokerage houses; such restrictions tend to adversely impact the
stock's marketablility and, consequently, the stock's price.
Moreover, many leading brokerage firms are reluctant to recommend
lower-priced securities to their clients and a variety of brokerage house
policies and practices currently tend to discourage individual brokers within
firms from dealing in lower-priced stocks. Some of those policies and practices
pertain to the payment of brokers' commissions and to time consuming procedures
that make the handling of lower priced stocks unattractive to brokers from an
economic standpoint. In addition, brokerage commissions also tend to adversely
impact upon holders of lower priced stocks because brokerage commissions on a
sale of a lower priced stock generally represents a higher percentage of the
sales price than the commissions on a higher priced stocks.
The Company is presently listed on The Exchange; however, the Company does
not meet the listing requirements for inclusion in The Exchange. Under The
Exchange's listing guidelines, listed companies which have low stock prices for
a sustained period risk de-listing by The Exchange. If the Company is unable to
satisfy The Exchange's requirements for continued listing, including, among
other things, an adequately high trading price, trading of the Common Stock
would thereafter be conducted in the over-the-counter market in the so-called
"pink sheets" or Nasdaq's "Electronic Bulletin Board." Consequently, the
liquidity of the Company's securities could be impaired, not only in the number
of securities which could be bought and sold, but also through delays in the
timing of transactions, reduction in security analysts' and the news media's
coverage of the Company, and lower prices for the Company's securities than
might otherwise be attained. If the Company's securities were delisted from The
Exchange, they may become subject to Rule 15g-9 under the 1934 Act, which
imposes additional sales practice requirements on broker-dealers which sell such
securities to persons other than established customers and institutional
accredited investors. For transactions covered by this rule, a broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale.
Consequently, the rule may affect the ability of broker-dealers to sell the
Common Stock.
The Board of Directors believes that the Reverse Split is in the best
interest of the Company and its stockholders. The price of the Common Stock
during the first quarter of 1996 ranged from a low closing price of $0.625 to a
high closing price of $1.50. On April 17, 1996, the closing price of the Common
Stock was $ .75.
Exchange of Certificate and Elimination of Fractional Share Interests
On the Effective Date, each five shares of Old Common Stock will
automatically be combined and changed into one share of New Common Stock. No
additional action on the part of the Company or any stockholder will be required
in order to effect the Reverse Split. Stockholders will be requested to exchange
their certificates representing shares of Common Stock held prior to the Reverse
Split for new certificates representing shares of Common Stock issued as a
result of the Reverse Split. Stockholders will be furnished the necessary
materials and instructions to effect such exchange promptly following the
Effective Date. Certificates representing shares of Old Common Stock
15
<PAGE>
subsequently presented for transfer will not be transferred on the books and
records of the Company but will be returned to the tendering person for
exchange. Stockholder should not submit any certificates until requested to do
so. In the event any certificate representing shares of Old Common Stock is not
presented for exchange upon request by the Company, any dividends that may be
declared after the Effective Date of the Reverse Split with respect to the
Common Stock represented by such certificate will be withheld by the Company
until such certificate has been properly presented for exchange, at which time
all such withheld dividends which have not yet been paid to a public official
pursuant to relevant abandoned property laws will be paid to the holder thereof
or his designee, without interest.
No fractional shares of New Common Stock will be issued to any stockholder.
Accordingly, stockholders of record who would otherwise be entitled to receive
fractional shares of New Common Stock, will, upon surrender of their
certificates representing shares of Old Common Stock, receive a cash payment in
lieu thereof equal to the fair value of such fractional share. Holders of less
than five shares of Old Common Stock as a result of the reverse stock split will
on the Effective Date no longer be stockholders of the Company. The Board of
Directors had determined that the fair value of the Common Stock will be based
on the closing price of the Common Stock on The Exchange on the Effective Date
or, if there are no reported sales on such date, the average of the last
reported high bid and low asked price on such day shall be used.
Federal Income Tax Consequences of the Reverse Stock Split
The combination and change of each five shares of the Old Common Stock into
one share of New Common Stock should be a tax-free transaction, and the holding
period and tax basis of the Old Common Stock will be transferred to the New
Common Stock received in exchange therefor. Generally, cash received in lieu of
fractional shares will be treated as a sale of the fractional shares (although
in unusual circumstances such cash might possibly be deemed a dividend), and
stockholders will recognize gain or loss base upon the difference between the
amount of cash received and the basis in the surrendered fractional share.
This discussion should not be considered as tax or investment advice, and
the tax consequences of the Reverse Split may not be the same for all
stockholders. Stockholders should consult their own tax advisors to know their
individual federal, state, local and foreign tax consequences.
Financial Statements
The Company's Annual Report for the year ended December 31, 1995, includes
the Company's audited consolidated financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," which
are incorporated by reference in this Proxy Statement. A copy of the Annual
Report accompanies this Proxy Statement. See "Incorporation by Reference."
Vote Required
The Reverse Split requires the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock.
The Board of Directors recommends a vote FOR the Reverse Split.
16
<PAGE>
APPROVAL OF THE COMPANY'S 1996 STOCK OPTION PLAN
The Board of Directors believes that in order to attract and retain the
services of executive and other key employees, it is necessary for the Company
to have the ability and flexibility to provide a compensation package which
compares favorably with those offered by other companies. Accordingly, in April
1996, the Board of Directors adopted, subject to stockholder approval, the 1996
Stock Option Plan (the "1996 Plan"), covering 500,000 shares of Common Stock. In
the event that the Reverse Split becomes effective, the number of shares of
Common Stock subject to the 1996 Plan will be 100,000 shares.
The Company had another stock option plan, the 1986 stock option plan (the
"1986 Plan"), pursuant to which options to purchase 850,000 shares of Common
Stock could be granted. The 1986 Plan expired in March 1996. As of the date of
this Proxy Statement, there were outstanding options to purchase 281,800 shares
of Common Stock pursuant to the 1986 Plan, of which options to purchase 251,800
shares were exercisable on such date.
In March 1996, pursuant to the Company's employment agreement with Mr.
Warren H. Esanu, the Company granted Mr. Esanu a non-qualified stock option to
purchase 500,000 shares of Common Stock at $0.769 per share, which was the
average closing price of the Common Stock during the last ten trading days in
March 1996.
The 1996 Plan does not have an expiration date except that Incentive Stock
Options cannot be issued subsequent to ten years from the date the 1996 Plan was
approved by the Board of Directors. Set forth below is a summary of the 1996
Plan, but this summary is qualified in its entirety by reference to the full
text of the 1996 Plan, a copy of which is filed as Exhibit A to this Proxy
Statement.
The 1996 Plan is authorized for 500,000 shares of the Common Stock; except
that, if the Reverse Split becomes effective, the number of shares of Common
Stock issuable pursuant to the 1996 Plan will be 100,000. In addition, any
shares of Common Stock subject to options which terminate or expire unexercised
shall be available for future grant pursuant to the 1996 Plan.
Options under the 1996 Plan may be granted to key employees, including
officers and directors of the Company and its subsidiaries, except that members
and alternate members of the stock option committee are not eligible for options
under the 1996 Plan, except that the 1996 Plan provides for the automatic grant
to non-management directors of non-qualified options to purchase 10,000 shares
on May 1st of each year, commencing May 1, 1996, based on the average closing
price of the last ten trading days in April of such year. If the Reverse Split
becomes effective, the number of shares subject to the automatic grant to
non-management directors will thereafter be 2,000 shares. Messrs. Howard D.
Brous, Herbert H. Feldman and Stanley Kreitman are the present directors who
qualify as non-management directors under the 1996 Plan. The 1996 Plan imposes
no limit on the number of officers and other key employees to whom awards may be
made.
The 1996 Plan will be administered by a committee of at least two
disinterested directors to be appointed by the board (the "Committee"). Any
member or alternate member of the Committee shall not be eligible to receive
options or stock under the 1996 Plan (except as to the automatic grant of
options to directors) or under any plan of the Company or any of its affiliates.
The Committee has broad discretion in determining the persons to whom stock
options are to be granted, the terms and conditions of the grant, including
whether the option is a nonqualified stock option or an incentive stock option,
the exercise price and term and the restrictions and forfeiture conditions. If
no committee is appointed, the functions of the committee shall be performed by
the board of directors.
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<PAGE>
Tax consequences of awards provided under the 1996 Plan are dependent upon
the type of options granted. The grant of an incentive or nonqualified stock
options does not result in any taxable income to the recipient or deduction to
the Company. Upon exercise of a nonqualified stock option, the recipient
recognized income in the amount by which the fair market value on the date of
exercise exceeds the exercise price of the option, and the Company receives a
corresponding tax deduction. In the case of incentive stock options, no income
is recognized to the employee, and no deduction is available to the Company, if
the stock issued upon exercise of the option is not transferred within two years
from the date of grant or one year from the date of exercise, whichever occurs
later. However, the exercise of an incentive stock option may result in
additional taxes through the application of the alternative minimum tax. In the
event of a sale or other disqualifying transfer of stock issued upon exercise of
an incentive stock option, the employee realizes income, and the Company
receives a tax deduction, equal to the amount by which the lesser of the fair
market value at the date of exercise or the proceeds from the sale exceeds the
exercise price. When compensation is to be recognized by the employee,
appropriate arrangements are to be made with respect to the payment of
withholding tax.
The adoption of the Company's 1996 Stock Option Plan requires the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock.
The Board of Directors recommends a vote FOR the 1996 Plan.
ELECTION OF AUDITORS
The Board of Directors has selected KPMG Peat Marwick, independent
certified public accountants, to serve as auditors for the Company for the
fiscal year ending December 31, 1996. A representative of KPMG Peat Marwick is
expected to be present at the Annual Meeting, with the opportunity to make a
statement if he or she desires to do so, and will be available to respond to
appropriate questions. KPMG Peat Marwick are considered by the Board of
Directors to be well qualified to serve as the Company's auditors, and
ratification by stockholders of their selection is therefore recommended.
Proxies received in response to this solicitation will, in the absence of
contrary specification, be voted in favor of such ratification.
The Board of Directors recommends a vote FOR the election of the auditors.
INCORPORATION BY REFERENCE
The Company incorporates by reference from the Annual Report only its
audited financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." A copy of the Annual Report is
being mailed to stockholders of record on the Record Date concurrently with the
mailing of this Proxy Statement. Additional copies will be provided by the
Company without charge upon request.
1997 STOCKHOLDER PROPOSALS
In order for stockholder proposals for the 1997 Annual Meeting of
Stockholders to be eligible for inclusion in the Company's proxy statement, the
proposals must be received by the Company at its principal office in Syosset,
New York prior to December 30, 1996.
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OTHER MATTERS
The expenses of preparing, printing and mailing this notice of meeting and
proxy material and all other expenses of soliciting proxies will be borne by the
Company. In addition to the solicitation of proxies by the use of the mails,
directors, officers and regular employees of the Company, who will receive no
compensation in addition to their regular salary, may solicit proxies by mail,
telegraph, telephone or personal interview. The Company has retained Morrow &
Co., Inc. to aid in the solicitation of proxies, for which the Company will pay
an estimated $5,000 plus expenses. In addition, the Company will reimburse
brokerage firms, banks, trustees, nominees and other persons holding shares of
Common Stock of record for the expense of forwarding proxy material to the
beneficial owners of shares.
Management does not know of any matters to be presented at the meeting
other than those described herein. However, if any other matters properly come
before the meeting, the holders of proxies solicited by the Board of Directors
of the Company intend to exercise their discretion in voting on the other
matters.
By order of the Board of Directors
WILLIAM V. CARNEY
Secretary
May 14, 1996
19
<PAGE>
Attachment A
PORTA SYSTEMS CORP.
1996 Stock Option Plan
1. Purpose; Definitions.
The purpose of the Porta Systems Corp. 1996 Stock Option Plan (the "Plan")
is to enable Porta Systems Corp. (the "Company") to attract, retain and reward
key employees of the Company and its Subsidiaries and Affiliates, and others who
provide services to the Company and its Subsidiaries and Affiliates, and
strengthen the mutuality of interests between such key employees and such other
persons and the Company's stockholders, by offering such key employees and such
other persons incentives and/or other equity interests or equity-based
incentives in the Company, as well as performance-based incentives payable in
cash.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Affiliate" means any corporation, partnership, joint venture or other
entity, other than the Company and its Subsidiaries, that is designated by the
Board as a participating employer under the Plan, provided that the Company
directly or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity or at least 20% of the ownership interests in
such entity.
(b) "Board" means the Board of Directors of the Company.
(c) "Book Value" means, as of any given date, on a per share basis (i) the
stockholders' equity in the Company as of the last day of the immediately
preceding fiscal year as reflected in the Company's consolidated balance sheet,
subject to such adjustments as the Committee shall specify at or after grant,
divided by (ii) the number of then outstanding shares of Stock as of such
year-end date, as adjusted by the Committee for subsequent events.
(d) "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
(e) "Commission" means the Securities and Exchange Commission or any
successor thereto.
(f) "Committee" means the Committee referred to in Section 2 of the Plan.
If at any time no Committee shall be in office, then the functions of the
Committee specified in the Plan shall be exercised by the Board.
(g) "Company" means Porta Systems Corp., a Delaware corporation, or any
successor corporation.
(h) "Disability" means disability as determined under procedures
established by the Committee for purposes of this Plan.
(i) "Disinterested Person" shall have the meaning set forth in Rule
16b-3(d)(3) as promulgated by the Commission under the Exchange Act, or any
successor definition adopted by the Commission.
(j) "Early Retirement" means retirement, with the express consent for
purposes of this Plan of the Company at or before the time of such retirement,
from active employment with the Company and any Subsidiary or Affiliate pursuant
to the early retirement provisions of the applicable pension plan of such
entity.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended,
from time to time, and any successor thereto.
(l) "Fair Market Value" means, as of any given date, the market price of
the Stock as determined by or in accordance with the policies established by the
Committee in good faith; provided, that, in the case of an Incentive Stock
A-1
<PAGE>
Option, the Fair Market Value shall be determined in accordance with the Code
and the Treasury regulations under the Code.
(m) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422A of
the Code.
(n) "Non-Management Director" means a director of the Company who is not
otherwise employed by the Company or any Subsidiary or Affiliate, provided,
however, that any person who is employed by the Company or any of its
subsidiaries and is an officer of the Company but does not receive compensation
from the Company for services as an officer shall be deemed a Non-Management
Director.
(o) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(p) "Normal Retirement" means retirement from active employment with the
Company and any Subsidiary or Affiliate on or after age 65.
(q) "Plan" means this Porta Systems Corp. 1996 Stock Option Plan, as
hereinafter amended from time to time.
(r) "Retirement" means Normal Retirement or Early Retirement.
(s) "Stock" means the common stock, par value $.01 per share, of the
Company or any class of common stock into which such common stock may hereafter
be converted or for which such common stock may be exchanged as part of a
recapitalization, reorganization or similar transaction.
(t) "Stock Option" or "Option" means any option to purchase shares of Stock
(including Restricted Stock and Deferred Stock, if the Committee so determines)
granted pursuant to Section 5 of the Plan.
(u) "Subsidiary" means any corporation or other business association,
including a partnership (other than the Company) in an unbroken chain of
corporations or other business associations beginning with the Company if each
of the corporations or other business associations (other than the last
corporation in the unbroken chain) owns equity interests (including stock or
partnership interests) possessing 50% or more of the total combined voting power
of all classes of equity in one of the other corporations or other business
associations in the chain.
In addition, the terms "Change in Control," Potential Change in Control"
and "Change in Control Price" shall have meanings set forth, respectively, in
Paragraphs 6(b), (c) and (d) of the Plan and the term "Cause" shall have the
meaning set forth in Paragraph 5(b)(viii) of the Plan.
2. Administration.
(a) The Plan shall be administered by a Committee of not less than two
Disinterested Persons, who shall be appointed by the Board and who shall serve
at the pleasure of the Board. If and to the extent that no Committee exists
which has the authority to so administer the Plan, the functions of the
Committee specified in the Plan shall be exercised by the Board. Notwithstanding
the foregoing, in the event that the Company is not subject to the Exchange Act
or in the event that the administration of the Plan by a Committee of
Disinterested Persons is not required in order for the Plan to meet the test of
Rule 16b-3 of the Commission under the Exchange Act, or any subsequent rule,
then the Committee need not be composed of Disinterested Persons. As long as
said Rule 16b-3 requires, as a condition to the officers and directors obtaining
the benefit of such rule, that the Committee be composed of Disinterested
Persons, each member or alternate member of the Committee shall not be entitled
to any grants under the Plan (except grants pursuant to Paragraph 4(b) of the
Plan) or under any other plans of the Corporation or its affiliates, except to
the extent that participation in a plan would not cause such person to cease
being a Disinterested Person for purposes of said Rule 16b-3.
A-2
<PAGE>
(b) The Committee shall have full authority to grant Stock Options,
pursuant to the terms of the Plan, to officers and other persons eligible under
Section 4 of the Plan. In particular, the Committee shall have the authority:
(i) to select the officers and other eligible persons to whom Stock
Options may from time to time be granted pursuant to the Plan;
(ii) to determine whether and to what extent Incentive Stock Options
and/or Non-Qualified Stock Options, or any combination thereof, are to be
granted pursuant to the Plan, to one or more eligible persons;
(iii) to determine the number of shares to be covered by each such
award granted pursuant to the Plan;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted under the Plan, including, but not
limited to, the share price or exercise price and any restriction or
limitation, or any vesting, acceleration or waiver of forfeiture
restrictions regarding any Stock Option or other award and/or the shares of
Stock relating thereto, based in each case on such factors as the Committee
shall, in its sole discretion, determine;
(v) to determine whether, to what extent and under what circumstances
a Stock Option may be settled in cash or other securities of the Company
under Paragraph 5(b)(x) of the Plan instead of Stock;
(vi) to determine whether, to what extent and under what circumstances
Option grants and/or other awards under the Plan and/or other cash awards
made by the Company are to be made, and operate, on a tandem basis with
other awards under the Plan and/or cash awards made outside of the Plan in
a manner whereby the exercise of one award precludes, in whole or in part,
the exercise of another award, or on an additive basis;
(vii) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the election
of the participant, including any provision for any determination or method
of determination of the amount (if any) deemed be earned on any deferred
amount during any deferral period; and
(viii) to determine an aggregate number of awards and the type of
awards to be granted to eligible persons employed or engaged by the Company
and/or any specific Subsidiary, Affiliate or division and grant to
management the authority to grant such awards, provided that no awards to
any person subject to the reporting and short-swing profit provisions of
Section 16 of the Exchange Act may be granted awards except by the
Committee.
(c) The Committee shall have the authority to adopt, alter and repeal such
rules, guidelines and practices governing the Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Plan and any
award issued under the Plan and any agreements relating thereto, and otherwise
to supervise the administration of the Plan.
(d) All decisions made by the Committee pursuant to the provisions of the
Plan shall be made in the Committee's sole discretion and shall be final and
binding on all persons, including the Company and Plan participants.
3. Stock Subject to Plan.
(a) The total number of shares of Stock reserved and available for
distribution under the Plan shall be five hundred thousand (500,000) shares of
Common Stock. Such shares may consist, in whole or in part, of authorized and
unissued shares or treasury shares. In the event that awards are granted in
tandem such that the exercise of one award precludes the exercise of another
award then, for the purpose of determining the number of shares of Stock as to
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which awards shall have been granted, the maximum number of shares of Stock
issuable pursuant to such tandem awards shall be used.
(b) Subject to Paragraph 6(b)(v) of the Plan, if any shares of Stock that
have been optioned cease to be subject to a Stock Option, such shares shall
again be available for distribution in connection with future awards under the
Plan.
(c) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, stock distribution, reverse
split, combination of shares or other change in corporate structure affecting
the Stock, such substitution or adjustment shall be made in the aggregate number
of shares reserved for issuance under the Plan, in the number of shares issuable
pursuant to Paragraph 4(b) of the Plan, in the number and option price of shares
subject to outstanding Options granted under the Plan, as may be determined to
be appropriate by the Committee, in its sole discretion, provided that the
number of shares subject to any award shall always be a whole number.
4. Eligibility.
(a) Officers and other key employees, consultants and directors of the
Company and its Subsidiaries and Affiliates (but excluding, except as to
Paragraph 4(b) of this Plan, members of the Committee and any person who serves
only as a director) who are responsible for or contribute to the management,
growth and/or profitability of the business of the Company and/or its
Subsidiaries and Affiliates are eligible to be granted awards under the Plan.
(b) On each May 1 of each year commencing May 1, 1996, each person who is a
Non-Management Director on such date shall be granted a nonqualified option to
purchase ten thousand (10,000) shares of Common Stock (or such lesser number of
shares of Common Stock as remain available for grant at such date under the
Plan, divided by the number of Non-Management Directors at such date). Such
options shall be exercisable, beginning six months after the date of grant, at a
price per share equal to the greater of (i) the average of the closing price of
the Common Stock (or, if the closing price is not reported on any such day, the
average of the high bid and low asked prices on such date) for the last ten (10)
trading days in April of such year or (ii) the par value of one share of Stock,
and such Option shall expire on the earlier of (i) ten years from the date of
grant, or (ii) twelve (12) months from the date such Non-Management Director
ceases to be a director of the Company if such Non-Management Director ceases to
be a director because of his death or Disability or (iii) seven (7) months from
the date such Non-Management Director ceases to be a director if such
Non-Management Director ceases to be a director other than as a result of his
death or Disability. The provisions of this Paragraph 4(b) may not be amended
more than one (1) time in any six (6) month period other than to comport with
changes in the Code or the Employee Retirement Income Security Act ("ERISA") or
the rules thereunder.
5. Stock Options.
(a) Administration. Stock Options may be granted alone, in addition to or
in tandem with other awards granted under the Plan and/or cash awards made
outside of the Plan. Any Stock Option granted under the Plan shall be in such
form as the Committee may from time to time approve. Stock Options granted under
the Plan may be of two types: (i) Incentive Stock Options and (ii) Non-Qualified
Stock Options. The Committee shall have the authority to grant to any optionee
Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock
Options.
(b) Option Grants. Options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Committee, in
its sole discretion, shall deem desirable:
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(i) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee at the time of
grant.
(ii) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than ten (10)
years after the date the Option is granted.
(iii) Exercisability. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined by
the Committee at or after grant. If the Committee provides, in its sole
discretion, that any Stock Option is exercisable only in installments, the
Committee may waive such installment exercise provisions at any time at or
after grant in whole or in part, based on such factors as the Committee
shall, in its sole discretion, determine.
(iv) Method of Exercise.
(A) Subject to whatever installment exercise provisions apply
under Paragraph 5(b)(iii) of the Plan, Stock Options may be exercised
in whole or in part at any time during the option period, by giving
written notice of exercise to the Company specifying the number of
shares to be purchased. Such notice shall be accompanied by payment in
full of the purchase price, either by check, note or such other
instrument, securities or property as the Committee may accept. As and
to the extent determined by the Committee, in its sole discretion, at
or after grant, payments in full or in part may also be made in the
form of Stock already owned by the optionee.
(B) No shares of Stock shall be issued until full payment
therefor has been received by the Company. In the event of any
exercise by note or other instrument, the shares of Stock shall not be
issued until such note or other instrument shall have been paid in
full, and the exercising optionee shall have no rights as a
stockholder until such payment is made.
(C) Subject to Paragraph 5(b)(iv)(B) of the Plan, an optionee
shall generally have the rights to dividends or other rights of a
stockholder with respect to shares subject to the Option when the
optionee has given written notice of exercise, has paid in full for
such shares, and, if requested, has given the representation described
in Paragraph 9(a) of the Plan.
(v) Non-Transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of
descent and distribution, and all Stock Options shall be exercisable,
during the optionee's lifetime, only by the optionee or optionee's legal
representative.
(vi) Termination by Death. Subject to Paragraph 5(b)(ix) of the Plan
with respect to Incentive Stock Options, if an optionee's employment by the
Company and any Subsidiary or Affiliate terminates by reason of death, any
Stock Option held by such optionee may thereafter be exercised, to the
extent such option was exercisable at the time of death or on such
accelerated basis as the Committee may determine at or after grant (or as
may be determined in accordance with procedures established by the
Committee), by the legal representative of the estate or by the legatee of
the optionee under the will of the optionee, for a period of one year (or
such other period as the Committee may specify at grant) from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter.
(vii) Termination by Reason of Disability or Retirement. Subject to
Paragraph 5(b)(ix) of the Plan with respect to Incentive Stock Options, if
an optionee's employment by the Company and any Subsidiary or Affiliate
terminates by reason of a Disability or Normal or Early Retirement, any
Stock Option held by such optionee may thereafter be exercised by the
optionee, to the extent it was exercisable at the time of termination or on
such accelerated basis as the Committee may determine at or after grant (or
as may be determined in accordance with procedures established by the
Committee), for a period of one year (or such other period as the Committee
may specify at grant) from the date of such termination of employment or
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until the expiration of the stated term of such Stock Option, whichever
period is the shorter; provided, however, that, if the optionee dies within
such one-year period (or such other period as the Committee shall specify
at grant), any unexercised Stock Option held by such optionee shall
thereafter be exercisable to the extent to which it was exercisable at the
time of death for a period of one year from the date of such death or until
the expiration of the stated term of such Stock Option, whichever period is
the shorter. In the event of termination of employment by reason of
Disability or Normal or Early Retirement, if an Incentive Stock Option is
exercised after the expiration of the exercise periods that apply for
purposes of Section 422A of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
(viii) Other Termination. Unless otherwise determined by the Committee
(or pursuant to procedures established by the Committee) at or after grant,
if an optionee's employment by the Company and any Subsidiary or Affiliate
terminates for any reason other than death, Disability or Normal or Early
Retirement, the Stock Option shall thereupon terminate; provided, however,
that if the optionee is involuntarily terminated by the Company or any
Subsidiary or Affiliate without Cause, including a termination resulting
from the Subsidiary, Affiliate or division in which the optionee is
employed or engaged, ceasing, for any reason, to be a Subsidiary, Affiliate
or division of the Company, such Stock Option may be exercised, to the
extent otherwise exercisable on the date of termination, for a period of
three months (or seven months in the case of a person subject to the
reporting and short-swing profit provisions of Section 16 of the Exchange
Act) from the date of such termination or until the expiration of the
stated term of such Stock Option, whichever is shorter. For purposes of
this Plan, "Cause" means a felony conviction of a participant or the
failure of a participant to contest prosecution for a felony, or a
participant's willful misconduct or dishonesty.
(ix) Incentive Stock Options.
(A) Anything in the Plan to the contrary notwithstanding, no term
of this Plan relating to Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted
under the Plan be so exercised, so as to disqualify the Plan under
Section 422A of the Code, or, without the consent of the optionee(s)
affected, to disqualify any Incentive Stock Option under such Section
422A.
(B) To the extent required for "incentive stock option" status
under Section 422A(b)(7) of the Code (taking into account applicable
Treasury regulations and pronouncements), the Plan shall be deemed to
provide that the aggregate Fair Market Value (determined as of the
time of grant) of the Stock with respect to which Incentive Stock
Options are exercisable for the first time by the optionee during any
calendar year under the Plan and/or any other stock option plan of the
Company or any Subsidiary or parent corporation (within the meaning of
Section 425 of the Code) after 1986 shall not exceed $100,000. If
Section 422A is hereafter amended to delete the requirement now in
Section 422A(b)(7) that the plan text expressly provide for the
$100,000 limitation set forth in Section 422A(b)(7), then this
Paragraph 5(b)(ix)(B) shall no longer be operative and the Committee
may accelerate the dates on which the incentive stock option may be
exercised.
(C) To the extent permitted under Section 422A of the Code or the
applicable regulations thereunder or any applicable Internal Revenue
Service pronouncement:
(I) If (x) a participant's employment is terminated by
reason of death, Disability or Retirement and (y) the portion of
any Incentive Stock Option that is otherwise exercisable during
the post-termination period specified under Paragraphs 5(b)(vi)
and (vii) of the Plan, applied without regard to the $100,000
limitation contained in Section 422A(b)(7) of the Code, is
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greater than the portion of such option that is immediately
exercisable as an "incentive stock option" during such
post-termination period under Section 422A, such excess shall be
treated as a Non-Qualified Stock Option; and
(II) if the exercise of an Incentive Stock Option is
accelerated by reason of a Change in Control, any portion of such
option that is not exercisable as an Incentive Stock Option by
reason of the $100,000 limitation contained in Section 422A(b)(7)
of the Code shall be treated as a Non-Qualified Stock Option.
(x) Buyout Provisions. The Committee may at any time offer to buy out
for a payment in cash or Stock, an option previously granted, based on such
terms and conditions as the Committee shall establish and communicate to
the optionee at the time that such offer is made.
6. Change in Control Provisions.
(a) Impact of Event. In the event of a "Change in Control," as defined in
Paragraph 6(b) of the Plan, or a "Potential Change in Control," as defined in
Paragraph 6(c) of the Plan, but, with respect to a Potential Change of Control,
only if and to the extent so determined by the Committee or the Board at or
after grant (subject to any right of approval expressly reserved by the
Committee or the Board at the time of such determination), the following
acceleration and valuation provisions shall apply:
(i) Any Stock Options awarded under the Plan not previously
exercisable and vested shall become fully exercisable and vested.
(ii) The value of all outstanding Stock Options, to the extent vested,
shall unless otherwise determined by the Committee in its sole discretion
at or after grant but prior to any Change in Control, be purchased by the
Company ("cashout") in a manner determined by the Committee, in its sole
discretion, on the basis of the "Change in Control Price" as defined in
Paragraph 6(d) of the Plan as of the date such Change in Control or such
Potential Change in Control is determined to have occurred or such other
date as the Committee may determine prior to the Change in Control.
(b) Definition of "Change in Control". For purposes of Paragraph 6(a) of
the Plan, a "Change in Control" means the happening of any of the following:
(i) When any "person" (as defined in Section 3(a)(9) of the Exchange
Act and as used in Sections 13(d) and 14(d) of the Exchange Act, including
a "group" as defined in Section 13(d) of the Exchange Act, but excluding
the Company and any Subsidiary and any employee benefit plan sponsored or
maintained by the Company or any Subsidiary and any trustee of such plan
acting as trustee) directly or indirectly becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act, as amended from time to
time), of securities of the Company representing twenty percent or more of
the combined voting power of the Company's then outstanding securities;
(ii) When, during any period of twenty-four consecutive months during
the existence of the Plan, the individuals who, at the beginning of such
period, constitute the Board (the "Incumbent Directors") cease for any
reason other than death, Disability or Retirement to constitute at least a
majority thereof, provided, however, that a director who was not a director
at the beginning of such 24-month period shall be deemed to have satisfied
such 24-month requirement (and be an Incumbent Director) if such director
was elected by, or on the recommendation of, or with the approval of, at
least two-thirds of the directors who then qualified as Incumbent Directors
either actually (because they were directors at the beginning of such
24-month period) or by prior operation of this Paragraph 6(b)(ii); or
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(iii) The occurrence of a transaction requiring stockholder approval
for the acquisition of the Company by an entity other than the Company or a
Subsidiary through purchase of assets, or by merger, or otherwise.
(c) Definition of Potential Change in Control. For purposes of Paragraph
6(a) of the Plan, a "Potential Change in Control" means the happening of any one
of the following:
(i) The approval by stockholders of an agreement by the Company, the
consummation of which would result in a Change in Control of the Company as
defined in Section 6(b) of the Plan; or
(ii) The acquisition of beneficial ownership, directly or indirectly,
by any entity, person or group (other than the Company or a Subsidiary or
any Company employee benefit plan or any trustee of such plan acting as
such trustee) of securities of the Company representing five percent or
more of the combined voting power of the Company's outstanding securities
and the adoption by the Board of Directors of a resolution to the effect
that a Potential Change in Control of the Company has occurred for purposes
of this Plan.
(d) Change in Control Price. For purposes of this Section 6, "Change in
Control Price" means the highest per share price which is (i) reported on the
principal stock exchange or market on which the Stock is traded or (ii) the
average of the highest bid and asked prices as reported by such exchange or
market, or (iii) paid or offered in any bona fide transaction related to a
potential or actual Change in Control of the Company at any time during the
sixty-day period immediately preceding the occurrence of the Change in Control
(or, where applicable, the occurrence of the Potential Change in Control event),
in each case as determined by the Committee.
7. Amendments and Termination.
(a) The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the rights of an
optionee or participant under a Stock Option theretofore granted, without the
optionee's or participant's consent, and no amendment will be made without
approval of the stockholders if such amendment requires stockholder approval
under state law or if stockholder approval is necessary in order that the Plan
comply with Rule 16b-3 of the Commission under the Exchange Act or any
substitute or successor rule or if stockholder approval is necessary in order to
enable the grant pursuant to the Plan of options or other awards intended to
confer tax benefits upon the recipients thereof.
(b) The Committee may amend the terms of any Stock Option or other award
theretofore granted, prospectively or retroactively, but no such amendment shall
impair the rights or any holder without the holder's consent. The Committee may
also substitute new Stock Options for previously granted Stock Options (on a one
for one or other basis), including previously granted Stock Options having
higher option exercise prices.
(c) Subject to the provisions of Paragraphs 7(a) and (b) of the Plan, the
Board shall have broad authority to amend the Plan to take into account changes
in applicable securities and tax laws and accounting rules, as well as other
developments.
8. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained in this Plan shall
give any such participant or optionee any rights that are greater than those of
a general creditor of the Company. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Stock or payments in lieu of or with respect
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to awards under this Plan; provided, however, that, unless the Committee
otherwise determines with the consent of the affected participant, the existence
of such trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan.
9. General Provisions.
(a) The Committee may require each person purchasing shares pursuant to a
Stock Option or other award under the Plan to represent to and agree with the
Company in writing that the optionee or participant is acquiring the shares
without a view to distribution thereof. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer. All certificates or shares of Stock or other
securities delivered under the Plan shall be subject to such stock-transfer
orders and other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of the Commission, any stock exchange
upon which the Stock is then listed, and any applicable Federal or state
securities law, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases.
(c) Neither the adoption of the Plan nor the grant of any award pursuant to
the Plan shall confer upon any employee of the Company or any Subsidiary or
Affiliate any right to continued employment with the Company or a Subsidiary or
Affiliate, as the case may be, nor shall it interfere in any way with the right
of the Company or a Subsidiary or Affiliate to terminate the employment of any
of its employees at any time.
(d) No later than the date as of which an amount first becomes includible
in the gross income of the participant for Federal income tax purposes with
respect to any award under the Plan, the participant shall pay to the Company,
or make arrangements satisfactory to the Committee regarding the payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to such amount. Unless otherwise determined by the Committee,
withholding obligations may be settled with Stock, including Stock that is part
of the award that gives rise to the withholding requirement. The obligations of
the Company under the Plan shall be conditional on such payment or arrangements
and the Company and its Subsidiaries or Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the participant.
10. Effective Date of Plan.
The Plan shall be effective as of the date the Plan is approved by the
Board, subject to the approval of the Plan by a majority of the votes cast by
the holders of the Company's Common Stock at the next annual or special meeting
of stockholders. Any grants made under the Plan prior to such approval shall be
effective when made (unless otherwise specified by the Committee at the time of
grant), but shall be conditioned on, and subject to, such approval of the Plan
by such stockholders.
11. Term of Plan.
Stock Options may be granted pursuant to the Plan, until this Plan shall be
terminated, but awards granted prior to such termination may extend beyond that
date. Notwithstanding the foregoing, no Incentive Stock Option may be granted
after the tenth (10th) anniversary of the date this Plan was approved by the
Board, although Incentive Stock Options granted prior to such date may extend
beyond such date.
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Attachment B
PROXY PORTA SYSTEMS CORP.
- - - - ----- 1996 ANNUAL MEETING OF STOCKHOLDERS -- JUNE 6, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Warren H. Esanu, William V. Carney and
Michael A. Tancredi, or any one of them acting in the absence of the other, with
full power of substitution or revocation, proxies for the undersigned, to vote
at the 1996 Annual Meeting of Stockholders of Porta Systems Corp. (the
"Company"), to be held at 8:45 a.m., local time, on June 6, 1996, at the
Company's offices located at 575 Underhill Boulevard, Syosset, New York, and at
any adjournment or adjournments thereof, according to the number of votes the
undersigned might cast and with all powers the undersigned would possess if
personally present.
(1) To elect the following six (6) directors:
Warren H. Esanu, Howard D. Brous, Herbert H. Feldman, Stanley Kreitman,
William V. Carney and Michael A. Tancredi.
[ ] FOR all nominees listed above (except as marked to the contrary
below).
[ ] Withhold authority to vote for all nominees listed above.
INSTRUCTION: To withhold authority to vote for any individual nominee, print
that nominee's name below.
- - - - --------------------------------------------------------------------------------
(2) To approve an amendment to the Company's certificate of incorporation to
change the authorized capital stock of the Company by increasing the number
of authorized shares of common stock, par value $.01 per share, from
20,000,000 shares to 40,000,000 shares:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(3) To approve one-to-five reverse split of the Company's Common Stock:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(4) To approve the Company's 1996 Stock Option Plan:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
<PAGE>
(5) To approve the selection of KPMG Peat Marwick, as the independent certified
public accountants of the Company for the years ending December 31, 1996:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(6) In their discretion, upon the transaction of such other business as may
properly come before the meeting; all as set forth in the Proxy Statement,
dated May 14, 1996.
The shares represented by this proxy will be voted on Items 1, 2, 3, 4 and
5 as directed by the stockholder, but if no direction is indicated, will be
voted FOR Items 1, 2, 3, 4, 5 and 6.
If you plan to attend the meeting please indicate below:
I plan to attend the meeting [ ]
Dated: , 1996
-----------------------------
----------------------------------------
----------------------------------------
----------------------------------------
(Signature(s))
Please sign exactly as name(s) appear
hereon. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such.
Please date, sign and mail this proxy in
the enclosed envelope, which requires no
postage if mailed in the United States.
